VERMONT ELECTRIC COOPERATIVE, INC.
REGULAR MEETING OF THE BOARD OF DIRECTORS
MAY 25, 2010
APPROVED MINUTES

As required under the VEC By-Laws, notice of this meeting was sent to each Director by deposit in U.S. mail on May 19, 2010.  

CALL TO ORDER – AGENDA ITEM # 1
President Tom Bailey called the meeting to order at 12:06 p.m. in the Robert P. Northrop Boardroom at VEC offices in Johnson, Vermont. Present were Thomas Bailey and Directors Dorothy Allard, Dan Carswell, Michelle DaVia, Craig Kneeland, Bertrand Lague, Howard Leighton,  Priscilla Matten, John Miller, Daniel Parsons, John Ward and Don Worth. Also present from VEC were CEO Dave Hallquist, COO Jeffery Wright, CFO Michael Bursell, Manager of Government Relations Randy Pratt, and Manager of Communications Kathryn Kantorski.

 Mark Woodward joined the meeting @ 12:09 p.m. 

INTRODUCE NEW DIRECTOR DON WORTH – AGENDA ITEM #2
President Bailey introduced VEC’s newest Director Don Worth of District 1 and current Directors introduced themselves and the District they represent. Mr. Worth gave a brief overview of his experience and what he brings to the Board. He indicated that he has a limited knowledge of the utility industry but a strong set of skills in business and finance. Worth told Directors that the main reason he decided to run for the position was the lack of representation from Essex County. 

MINUTES OF APRIL 27, 2010 REGULAR MONTHLY MEETING AND MAY 15, 2010 ORGANIZATIONAL BOARD MEETING APPROVED –AGENDA ITEM #3 

Ward moved Miller seconded: 

That the minutes of the April 27, 2010 Regular Monthly meeting and the minutes of the May 15, 2010 BOD Organizational meeting be tabled until the June meeting so Directors have an opportunity to review them. 

The motion carried unanimously. 

FINANCIAL UPDATE – AGENDA ITEM #4
CFO Bursell and those present engaged in a discussion of the Financial Update.

Bursell indicated that April results came in over budget with a variance of $201K, mostly due to the storm that hit the last week of April. VEC is still exceeding budget performance by $687K year to date.

Power Supply
VEC has been involved in several ongoing negotiations with the Hydro Quebec (HQ) contract. The new contract is only 70% of the amount included in the prior HQ contract. Additionally, other utilities that were previously excluded from the initial contract are requesting to be included this time around.  VEC anticipates allocation of our overall load share of the Hydro Quebec contract when negotiations are completed.

Banking
VEC typically  maintains about 40% equity and 60% debt. The financing plan included a financing of $5M to support VEC’s capital improvement plan. The financing requires VEC Board and Public Service Board approval  for completion. VEC has currently reached $5M on the short term line of credit and needs to begin the approval process for future financing expected to occur in October. Bursell proposed that VEC should seek approval levels up to $6M rather than the usual $5M for 2010 in anticipation of future projects, and execute the final amounts based on cash flow and VEC’s needs later in the year.

Discussion ensued whether any of the grant money VEC has been awarded can be used to offset this request for an increase in borrowing. Bursell explained that the grant funds would not offset the borrowing because the NEK grant money is a reimbursement once the entire project bids are completed.

Lague moved and Miller seconded:

            That the Board enter into Executive Session to discuss a financial matter.

The motion carried unanimously.

The Board entered into Executive Session at 12:27 p.m.

By majority vote of those Directors present the Executive Session ended at 12:40 p.m. 

EDA GRANT – AGENDA ITEM #5
Hallquist referred the Board to his presentation on the EDA Grant found on pages 17 – 28 of the Board packet that was previously mailed to all Directors. Hallquist explained that typically a major requirement of a grant is that construction cannot begin until the grant has physically been awarded however; VEC received a waiver on that requirement because construction on the Steel Tower project which is phase one of the NEK Connector had to be executed during the winter months when the ground is frozen. The second phase of the NEK project will build a new 26 mile, 34.5 kV transmission line with fiber optic cable from Bloomfield to Canaan.

Hallquist reviewed with Directors the reporting requirements and special conditions of the grant. VEC has an opportunity with this project to demonstrate VEC’s ability to manage grants effectively which could greatly impact awards of future grants. VEC will begin by outsourcing the management of this grant and later manage it in-house with VEC staff.

A Director expressed that VEC should  pursue grants wherever and whenever it seemed appropriate as a means of funding projects and further urged the Board to vote a resolution to direct management to pursue future grants. Extensive discussion ensued on the administration of grants in general. 

Woodward moved Kneeland seconded:

That management provide an hour presentation to the Board at the August meeting on grants that are available to the Coop for infrastructure, generation and energy conservation. 

Discussion ensued regarding whether or not VEC’s staffing level is adequate to handle the administration of additional grants. It was recommended that part of the presentation include what the costs associated with preparing grants is and the probability of being awarded such grants. 

There were seven [7] votes in favor of the motion and four [4] votes against. The motion carried by majority vote of those Directors present. 

Ward moved and Kneeland seconded: 

            That the Board adopt the following resolution. 

RESOLUTION:
The VEC Board of Directors authorizes management to sign the award letter of acceptance of EDA award for the NEK connector provided that the EDA accepts costs incurred from Steel Tower Line as match and the EDA accepts VEC’s project schedule and phasing.  Further, the Board of Directors understands that VEC’s obligation starts upon acceptance of the money; signature of the award letter allows management to continue to negotiate terms and conditions. 

The motion carried by unanimous vote. 

President Bailey called for break in the proceedings at 1:32 p.m.

The meeting resumed in the Robert P. Northrop Boardroom at 1:48 p.m.

Kathryn Kantorski did not return to the meeting after break. Amanda Niklaus, Internal Communications Specialist joined the meeting at 1:48 p.m.

Craig Kieny, Senior Resource Planner joined the meeting at 1:48 p.m.

KINGDOM COMMUNITY WIND UPDATE – AGENDA ITEM # 6
Hallquist provided an overview of the Kingdom Community Wind project to familiarize the newest Director Worth with the project and continue to provide status updates to the full Board. 

Bob Griffin, CFO and Charlie Pughe, KCW Project Manager and Engineer with Green Mountain Power (GMP) joined the meeting at 1:55 p.m. 

Status Update
Hallquist reported to the Board the following status updates:

• VEC has finalized the Letter of Intent to negotiate a purchase power agreement with GMP.
• On May 21, 2010 GMP filed the 248 Permitting Petition with the Public Service Board.
• The Town of Albany voted not to oppose the project which is consistent with data that in general Vermonters support wind generation.
• VEC does not want to set a price expectation to members on the purchase price of the power.
• Initial findings show that the VELCO - Jay Tap Substation may be treated as a “Pool Transmission Facility”. 

Operations and Development Update
COO Wright and those present engaged in a discussion regarding the status of KCW’s project development.  A recent draft report of a reliability study indicates there is a need to rebuild portions of VEC’s system to make new connection points in order to serve critical loads like Jay Peak, and ultimately to provide members with reliable service. Wright referred Directors to the development costs chart in the Board packet which was previously mailed to all Directors, and explained how cost components were defined between development and transmission costs.  

A Director requested that COO Wright provide the final cost of the project in order to determine the kilowatt hour price. Hallquist responded to the Board that today’s presentation was an informational update only and it is premature to present final numbers to the Board at this time because a final decision on the turbines hasn’t been made.  CEO Hallquist reminded Directors that the Board previously passed a resolution giving management the authority to negotiate a power purchase agreement and all elements contributing to the costs of the project will be included in the final presentation to the Board. 

CFO Bob Griffin of GMP emphasized that the financial model contains estimated numbers based on proposals they have received from a variety of turbine manufacturers. 

COO Wright discussed in detail the ISO cost sharing for the VELCO Jay Tap substation. Wright referred to page 53 of the Board packet which outlines the costs involved with two scenarios:

1. VELCO is granted Pool Transmission Facility and;
2.  VELCO is not granted Pool Transmission Facility  

Wright explained that if the ISO New England grants the designation of a Pooled Transmission Facility, it will improve reliability in the Jay area and VEC will be responsible for 8% of the total cost. However if VELCO is not granted the designation of a Pooled Transmission Facility, VEC and GMP will share the risk and be responsible for 100% of the total cost with VEC paying based on VEC’s load share of incremental cost. Wright explained that based on the reliability study it is believed that VELCO will likely be granted the designation of a Pooled Transmission Facility. He stated that his presentation was merely to inform the Board that a potential $7M risk exists.  In conclusion Wright told the Board that the KCW project will under go a public process for review and challenge, and anticipates that final approval will be received by the end of summer. 

Financial and Power Supply Update
CFO Bursell referred to the Letter of Intent which includes an estimated cost associated with the kilowatt price. Bursell explained that management negotiates through any inconsistencies associated with costs previously agreed upon in the original agreement. To date a total of $1M has been identified as “new costs” not included in the original LOI but these charges are allocated to the development phase and GMP is assuming the risk. It is anticipated that these costs will continue to change as they were all preliminary costs based on estimates.

Bursell told Directors that the KCW project will represent approximately 4% of VEC’s power supply portfolio which is designed around a long term strategy that includes renewable energy.  Bursell referred the Board to page 35 of the Board packet which was previously mailed to Directors, which reflects that in year 2015, most of VEC’s power resources will be open. VEC’s focus is on developing a diverse portfolio with KCW proving to be the most competitively priced contract over the life of the project. 

A Director expressed concern about the difference in the kWh price being presented today verses  the kWh price presented in September and asked to know the average kWh cost for the life of KCW. Bursell responded that the base case is within 2% of the September report. He further explained that in September it was considered unlikely that VELCO would not obtain the Pool Transmission Facility designation whereas now it is considered a cost risk.

It was recommended that this Director spend time offline with CFO Bursell and Craig Kieny in order to obtain answers to the pricing questions. A lengthy discussion ensued. 

Charlie Pughe of GMP informed the Board that the filed 248 permit documents are available on the kingdomcommunitywind.com website.  The Board had an opportunity to engage in a question and answer session around the specifics of the KCW project with Charlie Pughe and Bob Griffin of GMP. Griffin concluded the presentation on Kingdom Community Wind by explaining to the Board that for Green Mountain Power the project is an investment in the future because it will reduce time spent on reviewing and negotiating power supply contracts every year and secondly, it allows them to provide their customers with what they want, renewable energy. 

Kieny left the meeting at 2:43 p.m. and returned at p.m. 3:07 p.m.
DaVia left the meeting at 2: 43p.m. and returned at 3:07 p.m.
Worth left the meeting at 2:50 p.m. and returned at 2:53 p.m.
Griffin and Pughe of GMP left the meeting at 2:55 p.m. and did not return.

MANAGEMENT UPDATES – AGENDA ITEM # 7
CEO Hallquist engaged in a question and answer session with Directors regarding the managers’ updates that were included in the Board packets previously sent to Directors.  A lengthy discussion ensued regarding transformer utilization. 

Jay Tap Property
COO Wright requested a resolution from the Board to authorize the purchase of land at the Jay Tap. Wright explained that GMP will pay $180K which is 58% of the total cost of the property however; if the KCW project does receive approval VEC will be required to reimburse GMP for the 58% share of the cost. 

DaVia moved and Miller seconded: 

To approve the Resolution set forth to authorize the purchase of property at the Jay Tap. 

RESOLUTION
That VERMONT ELECTRIC COOPERATIVE Inc. (VEC) be and hereby is authorized to execute, deliver and perform the Purchase and Sales Agreement for +/- Three (3) Acres of land necessary to construct the Jay Tap Switching Station located at Leavitt Circle in Jay, Vermont (the “Agreement”) at a price not to exceed $180,000 which have been exhibited to this meeting and which shall be appended to the minutes hereof substantially in form and substance as presented; and 

That the CEO, CFO, COO, or any one or more of them be and hereby is and are authorized and directed on behalf of VEC to sign, execute and deliver, the said Agreements substantially in such form and substance as presented to this meeting and to do all things which any one or more of them by so doing deems in his, her or their sole judgment to be necessary or advisable to act on, carry out or perform the said Agreements or cause it to be acted on, carried out or performed; and 

That the CEO, CFO, COO, or any one or more of them be and hereby is and are authorized and directed on behalf of VEC to sign, execute and deliver any and all instruments or documents of whatever kind or character which any one or more of them by so doing deems in his, her or their sole judgment to be necessary or advisable to act on, carry out or perform the said Agreements or cause it to be acted on, carried out or performed AND TO AGREE TO SUCH MODIFICATION OF THE KINGDOM COMMUNITY WIND LETTER OF INTENT WHICH ANY ONE OR MORE OF THEM BY SO DOING DEEMS  IN HIS, HER OR THEIR SOLE JUDGMENT TO BE NECESSARY OR ADVISABLE TO CARRY OUT THE INTENT OF THIS BOARD OF DIRECTORS; and 

That all of the foregoing is contingent upon all approvals of state and federal boards, courts or tribunals or other bodies as are or may be required by law or the Bylaws. 

Brief discussion ensued on the proposed resolution. 

The motion carried unanimously.

Good Neighbor Fund
A Director requested an explanation of GMP’s proposed Good Neighbor Fund. CEO Hallquist explained that as a not-for-profit Cooperative, VEC is not allowed to participate in such a program. It was asked if GMP would pass this cost to our members through the purchase power agreement and Hallquist responded that GMP assured him that the funding of this program will only be derived out of GMP’s profit margin.

President Bailey proposed that management obtain a letter from GMP stating the cost of the Good Neighbor Fund will not be included in the purchase price agreement. Discussion ensued on the purchase power cost. 

Annual Meeting
It was requested management to prepare a report on this year’s Annual Meeting to include an analysis of balloting feedback, voting trends over the past five years and cost comparison. Hallquist committed to provide this report in the June Board packet. 

COMMITTEE REPORTS – AGENDA ITEM # 8
President Bailey gave an overview of Committee assignments and moved for a motion to nominate Director Kneeland to the Power Supply Committee and the Communications Committee, and that a motion be forthcoming to nominate Director Worth to the Communications Committee. 

Ward moved and Lague seconded:

That Kneeland be appointed to the Power Supply and Operations Committee and the Communications Committee, and that Worth be appointed to the Communications Committee. 

The motioned carried unanimously.

Power Supply Committee
Chairman Carswell presented the approved minutes from their last committee meeting. CFO Bursell updated the Board on the Hydro Quebec negotiations. 

Lague moved and DaVia seconded:

That the Board enter into Executive Session to discuss Power Supply Contracts. 

The motioned carried unanimously.

The Board entered into Executive Session at 3:42 p.m.

By majority vote of those Directors present the Executive Session ended at 3:50 p.m. 

ANY OTHER BUSINESS – AGENDA ITEM # 9
There was no other business. 

ADJOURN – AGENDA ITEM #11
There being no further business before the meeting,

Lague moved and Ward seconded:

 That the meeting be adjourned.

No discussion was forthcoming and the motioned carried unanimously.

The meeting adjourned at 3:51 p.m. 

Respectfully submitted:

Michelle DaVia, Secretary and Thomas Bailey, President

Signed minutes (PDF)